Trade war worries slam China and emerging markets
Chinese stocks fell almost 4 percent and alarm bells rang across
global markets on Tuesday, as the trade dispute between the United
States and China escalated further.
global markets on Tuesday, as the trade dispute between the United
States and China escalated further.
The yuan also hit a five-month low overnight after U.S. President
Donald Trump’s threat to impose a 10 percent tariff on another $200
billion of Chinese goods drew warnings from Beijing about $50 billion of
retaliatory penalties on U.S. goods.
Donald Trump’s threat to impose a 10 percent tariff on another $200
billion of Chinese goods drew warnings from Beijing about $50 billion of
retaliatory penalties on U.S. goods.
Asian stocks wilted to a four-month low and Australia’s dollar
<AUD=D4> and South Africa’s rand <ZAR=> were among a diverse
group of currencies caught in the crossfire. [FRX/][EMRG/FRX]
<AUD=D4> and South Africa’s rand <ZAR=> were among a diverse
group of currencies caught in the crossfire. [FRX/][EMRG/FRX]
Europe’s main equity benchmarks [.EU] sank 1 to 1.5 percent in
early trading and Wall Street futures were pointing to similar falls
there later, while safe-haven government bonds and the Japanese yen
rallied as investors sought protection.
early trading and Wall Street futures were pointing to similar falls
there later, while safe-haven government bonds and the Japanese yen
rallied as investors sought protection.
“You only have to look at how far the main Shanghai index has fallen
to see that people would probably want some safe-haven assets at this
point,” said DZ Bank analyst Andy Cossor.
to see that people would probably want some safe-haven assets at this
point,” said DZ Bank analyst Andy Cossor.
China had warned it will take “qualitative” and “quantitative”
measures if the U.S. government publishes an additional list of tariffs
on its products.
measures if the U.S. government publishes an additional list of tariffs
on its products.
The trade frictions have unnerved financial markets, with investors
and businesses increasingly worried that a full-blown trade battle could
derail global growth.
and businesses increasingly worried that a full-blown trade battle could
derail global growth.
“Trump appears to be employing a similar tactic he used with North
Korea, by blustering first in order to gain an advantage in
negotiations,” said Kota Hirayama, senior emerging markets economist at
SMBC Nikko Securities in Tokyo.
Korea, by blustering first in order to gain an advantage in
negotiations,” said Kota Hirayama, senior emerging markets economist at
SMBC Nikko Securities in Tokyo.
“The problem is, such a tactic is unlikely to work with China.”
GREAT FALL OF CHINA
MSCI’s broadest index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> fell 1.9 percent to its lowest since early
December. The losses had intensified through the day as the rout
deepened in China.
<.MIAPJ0000PUS> fell 1.9 percent to its lowest since early
December. The losses had intensified through the day as the rout
deepened in China.
The Shanghai Composite Index <.SSEC> slumped nearly 5 percent
at one point to its lowest level since mid-2016, while Hong Kong’s Hang
Seng shed as much 3 percent before ending 2.8 percent down.[.SS]
at one point to its lowest level since mid-2016, while Hong Kong’s Hang
Seng shed as much 3 percent before ending 2.8 percent down.[.SS]
China’s economy is already clouded by a sharp slowdown in fixed
asset investment growth due to the government’s deleveraging drive, a
problematic property sector, a mounting debt burden and rising credit
defaults
asset investment growth due to the government’s deleveraging drive, a
problematic property sector, a mounting debt burden and rising credit
defaults
Economists at Nomura wrote, “The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”
Japan’s Nikkei <.N225> lost 1.8 percent, South Korea’s KOSPI
<.KS11> retreated 1.3 percent while Australian stocks
<.AXJO> bucked the trend and added 0.1 percent, helped by a
depreciating currency and an overnight bounce in commodity prices.
<.KS11> retreated 1.3 percent while Australian stocks
<.AXJO> bucked the trend and added 0.1 percent, helped by a
depreciating currency and an overnight bounce in commodity prices.
The dollar fell 0.75 percent to 109.715 yen <JPY=> following
Trump’s tariff comments. The yen is often sought in times of market
turmoil and political tensions.
Trump’s tariff comments. The yen is often sought in times of market
turmoil and political tensions.
It made ground on the euro in early European trading, however, to stand 0.3 percent higher at $1.1556 <EUR=>.
China’s yuan <CNY=CFXS> skidded to a five-month low. The
Australian dollar <AUD=D4>, often seen as a proxy for
China-related trades, brushed a one-year low of $0.7381.
Australian dollar <AUD=D4>, often seen as a proxy for
China-related trades, brushed a one-year low of $0.7381.
EYES ON OPEC
With Russia and Saudi Arabia pushing for higher output, crude oil markets remained volatile ahead of Friday’s OPEC meeting.
Brent crude futures fell 0.8 percent to $74.76 a barrel after
rallying 2.5 percent overnight, while U.S. light crude futures retreated
0.9 percent to $65.27.[O/R]
rallying 2.5 percent overnight, while U.S. light crude futures retreated
0.9 percent to $65.27.[O/R]
Lower-risk assets gained on the latest round of trade threats.
Spot gold <XAU=> was up 0.35 percent at $1,282.26 an ounce albeit
after its sharpest drop in 1-1/2 years late last week.
Spot gold <XAU=> was up 0.35 percent at $1,282.26 an ounce albeit
after its sharpest drop in 1-1/2 years late last week.
The 10-year U.S. Treasury note yield <US10YT=RR> touched 2.871
percent, its lowest since June 1. Most European bond yields dropped too,
with Germany’s 10-year government Bund, the benchmark for the region,
at a two-week low of 0.363 percent. <DE10YT=RR>
percent, its lowest since June 1. Most European bond yields dropped too,
with Germany’s 10-year government Bund, the benchmark for the region,
at a two-week low of 0.363 percent. <DE10YT=RR>
Italian government bonds, which are considered less safe and have
suffered from recent domestic political ructions, sold off, with their
10-year yields <IT10YT=RR> up 3 bps at 2.59 percent.
suffered from recent domestic political ructions, sold off, with their
10-year yields <IT10YT=RR> up 3 bps at 2.59 percent.
But the stress was highest in emerging markets, where the average
yield on domestic currency debt was the highest since March 2017 and
fast approaching 7 percent.
yield on domestic currency debt was the highest since March 2017 and
fast approaching 7 percent.
“Escalation (of trade tensions) is a sort of impossible thing to
forecast, but if it stops at this level you have probably created some
nice risk premia in Asia and emerging markets,” said Hans Peterson,
global head of asset allocation at SEB Investment Management.
forecast, but if it stops at this level you have probably created some
nice risk premia in Asia and emerging markets,” said Hans Peterson,
global head of asset allocation at SEB Investment Management.
“So if it doesn’t get worse it is probably a buying opportunity.”
Source: Reuters (By Marc Jones; Additional reporting by Shinichi
Saoshiro in Toyko and Abhinav Ramnarayan in London; Editing by Catherine
Evans)
Saoshiro in Toyko and Abhinav Ramnarayan in London; Editing by Catherine
Evans)
